Olasunbo Sobogun
Henry Fayol, a business theorist once said “every business faces risks that could present threats to its success”. This is very true in the business world as there is no risk free business anywhere. Business risk refers to the possibility of inadequate profits or even losses due to uncertainties like change in taste, preferences of consumers, strikes, increased competition, change in government policies etc. Every business organisation contains various risk elements while doing business.
Business risk may take place in different forms depending on the nature and size of the business. It can be internal risks (risks arising from the events taking place within the organisation) and external risks (risks arising from the events taking place outside the organisation).
Dana Griffin in 2015 classified business risks to strategic risk which can result directly from operating within a specific industry at a specific time, compliance risk has to do with those risks subjected to legislative or bureaucratic rules, financial risk which has to do with how the business handles money, operational risk which results from internal failures, reputational risk that has to do with a company’s reputation and other risks which are more difficult to categorise.
Risk evaluation is important in business management as it helps to determine the significance of risk to the business. Risk management is not a one off exercise but a continuous monitoring and reviewing for the success of the business. Such monitoring ensures that risks have been correctly identified, assessed and appropriate controls put in place. This can be formalised in a risk management policy.
Preventive measures are advisable for business continuity but when risk become unavoidable, they can either be accepted, transferred, reduced or eliminated. A risk may be accepted because the cost of eliminating it completely is too high, it may be transferred which is typically done with insurance, reduced by introducing new safety measures or eliminated by changing the way a product is produced.
A good risk management can help overcome business hazards and improve the quality and returns of business and so also is choosing the right insurance to protect against Iosses.